Should the court refer a dispute to arbitration containing claims some of which are arbitrable and some are not?
Jurisdictions: India & the USA
Sukanya Holdings Pvt. Ltd. v. Jayesh Pandya (AIR 2003 SC 2252) (14.04.2003)
A Division Bench of the Supreme Court consisting of MB Shah & Arun Kumar, JJ (of the ONGC v SAW Pipes fame) held that where a dispute contains arbitrable and non-arbitrable claims, the dispute should not be referred to arbitration. Their reasoning is summarized below:
- The Act does not oust the jurisdiction of the civil court in case parties don't take steps to get the matter referred to arbitration (such as applying under Section 8). The Act contains no express provision answering the question in hand. It does not provide for splitting of the causes of action or the parties and referring some of them to arbitration. Further, it does not address a situation where one or few of the parties to the court proceedings were not subjected to an arbitration agreement. In the absence of such provisions,
- The phrase 'a matter' used in Section 8 implies that the matter in its entirety should be referable to arbitration.
- Since Section 8 of the Act does not speak of bifurcation of cause of action. If section 8 is interpreted to allow such a recourse, it would be equivalent to laying a wholly new procedure not provided for under the Act. If that was the intention, the Legislature would have used appropriate language permitting such bifurcation.
- Even so, bifurcation of the suit into parts to be decided by the arbitral tribunal and by the courts would lead to delay, increase in costs and the possibility of conflicting judgements by two different forums.
It is also worth noting that the Supreme Court did not consider that Section 8 was discretionary in nature- it differentiated the said provision with Section 34 of the 1940 Act which gave discretion to the court to refer the dispute to arbitration. Therefore, under Section 8, the court had to mandatorily refer a matter which is the subject of an arbitration agreement to arbitration.
KPMG LLP v. Robert Cocchi 565 US (2011) (07.11.2011)
Early this month, the US Supreme Court held that if a dispute contains claims, some of which are arbitrable and others are not, the arbitrable claims have to be referred to arbitration even if it led to “piecemeal litigation”. The court based its conclusion on the mandatory nature of section 2 of the Federal Arbitration Act, 1924 and held that the District Court is bound to refer the arbitrable claims in the dispute to arbitration even if it led to “inefficient maintenance of separate proceedings in different forums”.
It is amusing that two jurisdictions take two different views on the same question even when the provisions of law were of the same nature (mandatory and not discretionary). We’ll let the readers decide which of these two is correct but not before we mention a few aspects. One, it is universally acknowledged that statutes do not and cannot cover all situations that might crop up in the future. It is for the courts to use legal tools such as interpretation etc and render justice even if the situation is not squarely addressed by the statute. Just because the statute does not provide for something does not meant that courts should take a “hands-off approach”. Two, the same bench did not take a hands-off approach when it came to Saw Pipes.
On the face of it, this blawgger is of the opinion that the correctness of the judgements above would depend on whether the Supreme Court of India’s concern that bifurcation would lead to delays, increased costs and inconsistent decision was real. In labour jurisprudence, criminal proceedings and domestic enquiry could be taken up simultaneously for the same cause of action.